I. Field of the Invention
The present invention generally relates to financial systems and to systems and methods for processing financial information. More particularly, the invention relates to systems and methods for providing a home mortgage with an established credit line for the borrower.
II. Background and Material Information
When a lender provides a home mortgage loan to a borrower, the terms of the mortgage take into account various factors. The factors determine, in part, what interest rate the borrower will qualify for and even whether the mortgage loan is approved. One of these factors is the risk associated with nonpayment by the borrower. The risk of nonpayment represents the likelihood that the borrower will fail to make timely mortgage payments and possibly default on the mortgage loan—an outcome that the lender prefers to avoid. As such, when the risk of nonpayment is high, the lender may take one or more actions including (1) rejecting the mortgage application, (2) approving the mortgage application at a lower principal amount, (3) approving the mortgage application at a higher interest rate when compared to a borrower with a lower likelihood of nonpayment, and/or (4) requiring the borrower to make a larger down payment. In essence, the mortgage terms and conditions attempt to account for the risk of nonpayment.
Generally, a lender gathers information about the borrower's credit history, income, assets, and liabilities to assess the borrower's ability to repay the mortgage. With the information, the lender determines the risk of nonpayment associated with the borrower's mortgage. However, once the borrower receives the mortgage, the borrower may take additional loans against any equity in the mortgaged property. Indeed, even at the closing of a mortgage, a borrower may take a second mortgage on the property from a different lender. For example, the borrower may use funds from a second mortgage to supplement the down payment required to close the first (or original) mortgage on the property in cases where the first mortgage loan cannot exceed 80% of the value of the property. Similarly, the borrower may take a home equity line of credit (HELOC) against any equity in the mortgaged property. In both cases, the borrower has less of his own assets at stake when he defaults on the mortgage loan because the borrower has increased the debt and reduced equity in the property. Accordingly, second mortgages and HELOCs significantly increase the risk of mortgage nonpayment, which is a risk the lender seeks to avoid. More troubling, the first mortgage lender may be unaware of the second mortgage and HELOC and thus be unaware of the increased risk of mortgage nonpayment.
When a lender sells a mortgage to an investor, the investor of the mortgage makes a purchase decision based on the perceived risk associated with the mortgage. For example, an investor expects a higher rate of return when purchasing one or more mortgages with a higher likelihood of nonpayment when compared to mortgages that are unlikely to default. The same can be said for an investor in mortgage-backed securities: the investor expects a higher rate of return when investing in securities with a higher likelihood of nonpayment. However, the investor may be completely unaware of the second mortgage and HELOC and the associated increased risk of mortgage nonpayment.